Medicare Issues GMU

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Medicare IssuesGMU

• March 19, 2009
• Jack Ebeler

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All roads lead to Medicare

• Medicare only issues
• Health reform, insurance coverage
• Entitlement reform
• Federal budget
• Other health care issues (IT, quality.)

• Medicare
• improve program
• partially finance reform, or
• insurance alternative w/in reform, or
• save budget dollars, or
• yield long-term sustainability, or
• reduce variation, or improve quality, or

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OUTLINE

• I. Brief Medicare basics
• II. Health care costs, federal budget
• III. Medicare directions

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I. MEDICARE BASICS
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Medicare very basic basics

• Eligibility
• General age 65, or receipt of disability
  insurance, ESRD
• Part A (HI) eligible for Soc. Sec (paid payroll
  tax)
• Part B (SMI) monthly premium (96.40)
• Part D (Rx Drug) health plan premium
• Benefits
• Acute care benefits, now including drugs, some
  post-acute
• Deductible, cost sharing no catastrophic limit
• Medicare covers about half of total health
  expenditures
• Most beneficiaries supplement coverage to cover
  cost sharing, other benefits

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Multiple programs and ways of financing benefits

• Traditional fee for service Medicare, parts A and
  B (hospital, physician, lab, diagnostic
  technology, post acute SNF, home health, hospice)
  not long-term care
• Usually with some form of supplemental coverage
  for cost sharing
• Prescription drug program new part D program
  administered through competing private insurers
• Medicare Advantage Program coverage of Medicare
  AB benefits, usually part D drugs as well,
  through a private insurer that is fully capitated

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Sources and uses of funds, Medicare, 2009
Source Kaiser Family Foundation Fact Sheet
(www.kff.org)
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Medicare Population

• About 85 percent of the Medicare population is
  age 65 and over the other 15 percent qualify on
  the basis of disability or ESRD.
• About half of the population has income below
  200 of the federal poverty level
• About one third have 3 or more chronic conditions
• Most spending is for those with multiple chronic
  conditions
• More than one-fourth have a cognitive or mental
  impairment.
• Nearly one-fifth are also eligible for Medicaid
• Most have supplemental benefits of some sort.

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Income status of Medicare beneficiaries, 2005
Source MedPAC Data Book, June 2008 In 2005,
poverty level 9,367 for individual 11,815 for
couples
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Medicare has slowly moved to more means-testing
of benefits and income-related financing

• There are now multiple tiers of Medicare
  beneficiaries
• Poorest Medicaid/Medicare duals
• Above Medicaid but lt_at_150 of FPL little/no
  premium or Medicare cost sharing for covered
  benefits
• Average beneficiaries pay part B/D premium
  (ave. _at_130/mo) plus deductibles, copays in parts
  A, B, D
• Higher income beneficiaries
• Tax on 35 of SS benefit -gtHI average about
  135/mo.
• Phasing in higher part B premium up to 80
• Administration budget proposes higher part D
  (drug) premium as well

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Most beneficiaries have coverage that supplements
Medicare
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Spending concentrated among small portion of
beneficiaries, 2005 (typical of health insurance)
MedPAC Databook, June 2008 (www.MedPAC.gov)
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II. HEALTH SPENDING, FEDERAL BUDGET
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Health care spending (both public and private)
continues to grow as a share of GDP
CBO Long Term Budget Outlook, 2008, Alternative
Fiscal Scenario
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U.S. Health Care Spending Much Higher Than Other
Countries
Health Spending as a Percent of GDP, 2002

U.S. Health Spending Habits Grab International
Attention, Health Affairs July/August 2005
Note Most recent data show that NHE as percent
of GDP in the U.S. in 2002 were 15.4 not the
14.6 given in the graph.
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The federal budget Medicare and Medicaid
account for higher shares of GDP and drive the
federal budget up as well
CBO Long Term Budget Outlook, 2008, Alternative
Fiscal Scenario
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The big entitlement reform issue is not the
aging of baby boomers, it is rising health care
costs

• There will be more elderly as baby boomers age.
  And there will be more of the older elderly (85)
  who need even more health care.
• But health care costs are the main driver of
  Medicares fiscal issues.
• The entitlement debate is not, analytically, an
  aging debate. It focuses on underlying health
  care cost inflation and its impact on public
  programs and public finance

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Growth in federal health spending excess cost
growth, not aging, is the issue
CBO, November 2007
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Medicare sources of financing and shortfalls, as
percent of GDP, 2000 - 2080
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Medicare spending per capita varies very
significantly

Total Medicare spending, and spending for
patients in their last six months of life, varies
significantly by high and low spending regions.
(Lowest)
(Highest)
Medicare Spending Quintile
Fisher, et al., The implications of regional
variations in Medicare spending. Part 1 The
content, quality, and accessibility of care.
Annals of Internal Medicine, 2003138(4)
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Higher spending is NOT associated with higher
quality, satisfaction
There is no correlation between higher spending
and specific indicators of quality care and
service.
HEDIS Indicators
Medicare Spending Quintile
Fisher, et al., The implications of regional
variations in Medicare spending. Part 1 The
content, quality, and accessibility of care.
Annals of Internal Medicine, 2003138(4)
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Medicare and Medicaid account for higher shares
of GDP and drive the federal budget up as well
so?
CBO Long Term Budget Outlook, 2008, Alternative
Fiscal Scenario
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The federal budget average revenues are about
18-19 of GDP, so the fiscal gap is huge
Average revenue
CBO Long Term Budget Outlook, 2008, Alternative
Fiscal Scenario
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With those deficits, the resulting interest
payments would dwarf the rest of the budget
need constraint and new revenue
Average revenue
CBO Long Term Budget Outlook, 2008, Alternative
Fiscal Scenario
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III. MEDICARE DIRECTIONS
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All roads lead to Medicare

• Medicare only issues
• Health reform, insurance coverage
• Entitlement reform
• Federal budget
• Other health care issues (IT, quality.)

• Medicare
• improve program
• partially finance reform, or
• insurance alternative w/in reform, or
• save budget dollars, or
• yield long-term sustainability, or
• reduce variation, or improve quality, or

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Medicare directions

• Problems well known, driven by problems with FFS
  medicine
• Care coordination is all too rare
• Specialty care, technology favored over primary
  care
• Quality inadequate and highly variable
• Health care costs high, variable and
  unsustainable
• Need for fundamental reform to address underlying
  costs
• Focus of change is improving delivery, focus on
  value
• Need to define payment and coverage approaches to
  support/incent the changes
• Sounds logical but costs revenues

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Medicare short-term

• Deal with ongoing, critical issues in context of
  budget and health care issues
• Set FFS payment updates
• Address MD payment levels (SGR), redistribution
• Access begin rebuilding primary care w/pay
  increases
• Reduce Medicare Advantage 14 overpayment
  restructure for original purpose alternative
  delivery
• What do about benefits/cost sharing most
  beneficiaries buy protection from the cost
  sharing which increases Medicare spending?

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Medicare, long-term vehicle for savings and
delivery reform

• Key conceptual trends (1)
• Shift unit of analysis and payment from CPT code
  transactions to episodes of care and bundling
• Episodes that are clinically and economically
  relevant, for patient and physician
• Look to care across providers and over time
• Support chronic care coordination
• Re-norm payments from average cost pricing to
  benchmark providers/areas

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Medicare, long-term

• Key conceptual trends (2)
• Evidence-based research trends may provide new
  options
• coverage (comparative effectiveness, coverage
  with evidence, etc.)
• patient cost sharing (differentials)
• Migrate care coordination capacity (IT, people)
  to delivery system to support care, away from
  vendor management of delivery for payors
• Heading to degrees of risk sharing/ provider
  accountability for some/ or all of a populations
  care
• Continue income-tiering (already very prevalent
  in Medicare)

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Some specific policy recommendations/phases

• Initial
• Payment policy whack-a-mole slow
  redistribution to PC
• Crosscutting interventions P4Q measure, report
  resource use comparative effectiveness research,
  public reporting/transparency
• Intermediate
• Medical home for chronically ill monthly
  payment
• Bundled hospital admission hospital, MD, 30-day
  post discharge
• start w/data reporting initial reduction for
  high readmission rates
• pilot for systems that can implement soon
• Better define post-acute coverage, care, payment
• Longer-term Accountability at delivery system
  for care

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Framing with health reform complicates, the
equation

• Two elements of health reform frame/complicate
  Medicare debate
• Financing President proposes 630 billion
  set-aside for health reform (coverage expansion)
• _at_ ½ from savings (mostly Medicare)
• _at_ ½ from expiring tax cuts on higher income
• Insurance option policy alternative for
  expanding coverage some type of insurance
  exchange with
• Competing private insurers, along with
• Public program
• With those alternatives under debate, you get
  very different views, positions on Medicare
  options

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All roads lead to Medicare

• Medicare only issues
• Health reform, insurance coverage
• Entitlement reform
• Federal budget
• Other health care issues (IT, quality.)

• Medicare
• improve program
• partially finance reform, or
• insurance alternative w/in reform, or
• save budget dollars, or
• yield long-term sustainability, or
• reduce variation, or improve quality, or

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• THANK YOU
• Jack Ebeler
• 202-669-5444

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The revenue constraint Federal spending and
revenues as a share of GDP, 1966-2017 average
revenue 18.3 percent
Projected
Actual
Average Outlays, 1966-2006
Between 1966-2006, average spending was 20.6 of
GDP, while average revenues were 18.3 of GDP.
Revenues hit their 40-year low of 16.3 of GDP in
2004.
Average Revenues, 1966-2006
Congressional Budget Office. The Budget and
Economic Outlook FY 2008-2017, Washington, DC,
January, 2007
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Sources of coverage for lt65 population,
1987-2006

• Employment-based coverage has slowly declined
• Public programs have picked up some of the slack,
  especially for children in low-income families.
• The individual market has remained small
• The portion of the population uninsured has
  slowly increased.

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SOURCES OF HEALTH INSURANCE COVERAGE, INDIVIDUALS
UNDER AGE 65, BY FAMILY INCOME, 2005

• The likelihood of employment-
• based coverage increases with
• income.
• The likelihood of public
• coverage decreases with
• income.
• Individual coverage is fairly
• constant.
• The likelihood of being
• uninsured decreases with
• income.

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Medicare spending increases as beneficiaries age,
2005
MedPAC Databook, June 2008 (www.MedPAC.gov)
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Components of federal budget FY 2009 (Pre-
financial meltdown, rescue package)
Five items constitute 2/3 of the federal
budget. Medicare and Medicaid now account for
about 19 percent of federal spending and remain
the fastest growing (other than interest)
CBO, Budget and Economic Outlook An Update,
September, 2008